Mark Thornton has already noted that Ben Bernanke’s professed admiration for Alexander Hamilton is overblown, especially in light of Hamilton’s ties to the crony capitalists of his day. But there is more to be said about this, and, surprisingly, not all of it to Hamilton’s discredit.
As readers will recall, when the Obama administration announced that it was planning to replace Alexander Hamilton on the ten dollar bill with an unspecified woman, former Fed Chairman Ben Bernanke leapt into the fray. He said he was “appalled” by the decision since Hamilton “was without doubt the best and most foresighted economic policy maker in US history.” He proposed that Andrew Jackson be removed from the twenty dollar bill instead.
A New York Sun editorial on June 23 dryly noted that Hamilton was the author of the Coinage Act of 1792, which represents the very sound money that Bernanke has done everything in his power to destroy. The Sun, however, tempered its criticism with the following comment: “We understand that there are serious persons who reckon Hamilton, who was notoriously partial to federal power, would not have opposed the idea of fiat paper money. This point has been marked for us by no less a scholar than the journalist and historian Myron Magnet…. Let us stipulate Mr. Magnet’s point.
Let us not stipulate Magnet’s point, because it is incorrect. Hamilton condemned paper money not backed by gold or silver as an evil. Here is what Hamilton actually said: “The emitting of paper money by the authority of Government is wisely prohibited….Though paper emissions, under a general authority, might have some advantage…, yet they are of a nature so liable to abuse—and it may even be affirmed, so certain of being abused—that the wisdom of the Government will be shown in never trusting itself with the use of so seducing and dangerous an expedient…. The stamping of paper is an operation so much easier than the laying of taxes, that a government, in the practice of paper emissions, would rarely fail…to indulge itself too far in the employment of that resource…even to [ the point of creating]…an absolute bubble.” [ Report to the House of Representatives, Dec 13, 1790]
So there you have it. Hamilton was not only against paper money, because of how it would be abused by people like Ben Bernanke. He also warned about the creation of bubbles by debasing the currency, a warning that Bernanke would have done well to heed as he blithely blew up both the housing bubble that crashed in 2008 and today’s potentially even bigger bubble.
As for Bernanke wanting to replace Andrew Jackson on the twenty dollar bill, that is clearly because Jackson abolished our second central bank, the predecessor to today’s Fed, in 1836. In doing so, he wrote a statement explaining how central banks are too easily captured by special interests. This statement, readily available on the internet, is a brilliant analysis of the dangers of crony capitalism, and has much to say about our own time.
As Jackson summed up: “ The mischief [ in a central bank] springs from the power that the moneyed interest derives from a paper currency they are able to control.” That one sentence expresses what is most wrong about the US economy today. Mr. Bernanke, crony capitalist par excellence, could not be expected to approve.
